Correlation Between Caixabank and Berkeley Energia

Can any of the company-specific risk be diversified away by investing in both Caixabank and Berkeley Energia at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Caixabank and Berkeley Energia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caixabank SA and Berkeley Energia Limited, you can compare the effects of market volatilities on Caixabank and Berkeley Energia and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Caixabank with a short position of Berkeley Energia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caixabank and Berkeley Energia.

Diversification Opportunities for Caixabank and Berkeley Energia

0.8

Correlation Coefficient

Caixabank  Berkeley Energia

Very poor diversification

The 3 months correlation between Caixabank and Berkeley is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Caixabank SA and Berkeley Energia Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkeley Energia and Caixabank is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Caixabank SA are associated (or correlated) with Berkeley Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkeley Energia has no effect on the direction of Caixabank i.e., Caixabank and Berkeley Energia go up and down completely randomly.

Pair Corralation between Caixabank and Berkeley Energia

Assuming the 90 days trading horizon Caixabank is expected to generate 1.76 times less return on investment than Berkeley Energia. But when comparing it to its historical volatility, Caixabank SA is 3.92 times less risky than Berkeley Energia. It trades about 0.31 of its potential returns per unit of risk. Berkeley Energia Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Berkeley Energia Limited on December 29, 2024 and sell it today you would earn a total of  12.00  from holding Berkeley Energia Limited or generate 60.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Caixabank SA  vs.  Berkeley Energia Limited

Caixabank SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caixabank SA are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Caixabank exhibited solid returns over the last few months and may actually be approaching a breakup point.

Berkeley Energia

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Berkeley Energia Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Berkeley Energia exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caixabank and Berkeley Energia

The main advantage of trading using opposite Caixabank and Berkeley Energia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caixabank position performs unexpectedly, Berkeley Energia can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Berkeley Energia will offset losses from the drop in Berkeley Energia's long position.

The idea behind Caixabank SA and Berkeley Energia Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.